"The original law change treated Rotorua unfairly by allowing Taupo and Queenstown to remain open but making it an offence for Rotorua businesses to open their doors," said Mr McClay.
"Tourism is a big employer locally. It adds millions to our local economy and Easter weekend is probably our busiest visitor weekend of the year. Today a majority of MPs have decided to even the playing field and offer Rotorua a choice. We can now decide for ourselves whether we want to cater to the demands of our visitors over Easter."
Mr McClay said it was possible because he convinced the National Party to adopt the issue as a Government Bill.
"In 2009 I introduced a Private Members Bill which was narrowly defeated. Mayor Steve Chadwick made two attempts to change the law, one as a members bill the other as a local bill. Both of these attempts also fell short.
"This has been an important issue for every Rotorua MP for a long time. I am delighted to have played a part to rectify what for many has been an injustice. During successive elections there were calls for the government to sort this issue out for Rotorua.
"I made a commitment in 2008 to continue to work on a fairer deal for Rotorua over Easter weekend - building support vote by vote if necessary. Today this work has paid off and I am grateful to every MP who has backed Rotorua and our tourism industry in Parliament."
Mr McClay said the law change had been closely modelled on his 2009 bill.
"It ensures that workers who don't want to work on Easter Sunday cannot be forced to - and that they are not penalised for deciding not to. Businesses also cannot be forced to open on this day."
Rotorua Chamber of Commerce chief executive Darrin Walsh said it was fantastic news.
"The choice to open or not will ultimately rest with the business owner.
"Rotorua as a tourist destination has for many years been closed whilst other tourist destinations were allowed to open. Today's announcement is a big step forward at last!
He said he went with mayor Steve Chadwick earlier in the year to Wellington to advocate to the select committee and put the case forward for Rotorua businesses - "great to see we were listened to".
"There is some debate that the right to open should be extended to Good Friday as well and that the liquor licensing laws over Easter also need some adjustment - but these are arguments for another day.... We will celebrate this win!"
The Government said a law change was needed because current regulations are complex and relatively arbitrary.
Historically, the law allowed some exemptions, which meant shops in tourist hotspots like Queenstown and Taupo were open, but not those in popular Wanaka and Rotorua. However, many businesses in those towns choose to open and risk prosecution.
Mr Woodhouse said the bill put choice in the hands of communities.
"The question of whether to allow shop trading over the Easter period is a contentious one, considered by this House on numerous occasions...the Government wants to resolve this perennial issue and this bill provides a pragmatic solution."
Labour and the Green Party argued the change should be decided at a national level, and it was inappropriate to give councils the responsibility.
They also said the protections in the bill that would allow retail workers to decline work without negative consequences were unlikely to be effective.
Green Party MP Mojo Mathers questioned whether today's law change would eventually lead to shop trading on other holidays including Christmas.
New Zealand First opposed the changes, and argued local elections can be used for a local referendum on whether to liberalise local trading hours further.
In its submission on the changes, Retail NZ supported trading on Easter Sunday, but said leaving the decision to councils could result in 67 local authorities having 67 sets of rules. The lobby group was particularly concerned that councils will be able to make rules for all or part of their district.
